With Yahoo Bid, Verizon Gobbles Up the Past To Avoid an Obsolete Future

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With Yahoo Bid, Verizon Gobbles Up the Past To Avoid an Obsolete Future

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To overcome its fear of the future as a big dumb pipe, Verizon continues to look to the past. Last year, it spent $4.4 billion for AOL and its surprisingly advanced ad tech. Today, it’s spending another $4.8 billion on Yahoo, a surprisingly popular content company. That's a lot of money for companies that have devolved into punchlines over the last several years. But it’s also Verizon’s best shot at staying relevant.

Today’s Yahoo acquisition isn’t any kind of pivot. It’s not even really a surprise; Verizon has reportedly been eyeing the crown jewel of '90s Internet for months. It’s a continuation of an ongoing strategy to become more than just a shuttler of bits and bytes from one place to another. In a world of increasing (and increasingly warranted) regulation of Internet service providers, content and ad companies like AOL and Yahoo are more than nostalgia plays. They’re a way forward.

A Smart Pipe

Telecom companies today are gripped by the fear of being reduced to utilities, and for good reason. The unbundling and decentralization of the cable package, combined with the FCC’s staunch advocacy of net neutrality, have given ISPs a glimpse of a future in which they’re every bit as exciting as the local waterworks board. And even outside of regulatory challenges, it's increasingly a slog of a business..

If and when this acquisition goes through, Verizon could be the Internet’s biggest landowner.

So how do they hedge against turning into a faucet? By controlling whatever’s coming out of it, too. That’s why Comcast bought NBCUniversal, and has made significant investments in new media start-ups like Vox and Buzzfeed. It works in the other direction as well; a company spun off from Liberty Media, a major content distributor, owns a quarter of telecom Charter Communications, which recently acquired telecoms Time Warner Cable and Bright House Networks. Advance/Newhouse Partnership, which owns WIRED parent company Condé Nast, also has a sizable Charter stake.

The bedfellows, they are complicated! And that’s before you even get to Verizon, which last year picked up AOL less for its big-name media brands, like Huffington Post and Engadget, than for its booming ad tech business. Yes, AOL still makes millions off of dial-up subscribers, and that will never stop being hilarious and sad. It also, though, takes in hundreds of millions of dollars each quarter specifically from its ability to put the right ads in front of the right people. That's a skill any Internet company serious about surviving must master.

“Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers,” said Verizon Chairman and CEO Lowell McAdam in a statement announcing the Yahoo acquisition. In a marriage that Yahoo CEO Marissa Mayer described as “poetic,” Verizon’s new pick-up won’t just be working alongside AOL to help prepare for the future. It’s going to be subsumed by it.

Advertising alone can be a little dry. Best to pair it with some vintage content.

The Sum of Its Parts

Yahoo isn’t Verizon’s first descent into the content mines. In addition to owning the AOL media properties above, the company has attempted a few home-grown efforts as well. There was Sugarstring, an ill-fated tech news site that shut down about as quickly as the world bothered to notice it existed. Around the same time, it launched “Go90,” a mobile video service with some unsettling net neutrality implications. And this spring, Verizon partnered up with old-media stalwart Hearst to acquire Complex Media, which caters video and web content to young men.

It’s probably best to view these forays into content as experiments. Ad tech, online content, and a deep trove of customer data are a powerful combination—but only when all three are at scale. In Yahoo, Verizon majorly bolsters the latter two.

“Verizon wants Yahoo to fill out its omnichannel content and advertising play,” writes Forrester Research analyst Shar VanBoskirk. “The more access to customer data it has (online through Yahoo and AOL, in home via cable boxes, on mobile via smart devices) the more targeted it can be with advertising and sponsored content or product placements across those same devices.”

However dismissive savvy Internet consumers are of Yahoo, it’s impossible to deny its scope. Remember, Yahoo isn’t just Yahoo; it’s Flickr, and Tumblr, and Yahoo Sports and Rivals. All of these sites have registered users, and registered users provide data, and data can be used to serve more lucrative ads.

Some perspective helps here, because the combined assets under Verizon after acquiring Yahoo really would be bigger than you’re likely imagining. According to the latest Comscore rankings, Yahoo-affiliated sites were the third most visited on the Internet in June, behind only Google-affiliated sites and Facebook. In that same ranking, AOL placed seventh; the two combined would have seen nearly 360 million unique visitors that month. That’s a full 50 percent more than Google. If and when this acquisition goes through, Verizon could be the Internet’s biggest landowner.

If and When

An ISP controlling that much content naturally raises some regulatory questions. Although, perhaps surprisingly, not many of them.

Viewed through one lens, Verizon-AOL-Yahoo represents a troubling scenario. Verizon’s in a position to know not just who you are but where you are, and what you’re watching on your cable box, and your smartphone, and your computer. The Center for Digital Democracy has publicly called on the FCC and the Justice Department to “scrutinize” the merger, and other advocacy groups have raised concerns as well, especially over the net neutrality implications.

"We just hope Verizon’s investment in online content is not premised on a belief it can continue to violate network neutrality rules and favor its own mobile video content over rivals," says Michael Calabrese, Director of the Open Technology Institute's Wireless Future Project.

The FCC declined to comment on the proposed acquisition. Action seems unlikely, though. For one thing, there’s precedent; if Comcast could buy NBCUniversal, there’s little reason Verizon couldn’t pick up Yahoo. For another, the FCC’s proposed net neutrality rules would theoretically limit the type and amount of data Verizon could garner from Yahoo users. (The president appoints a slate of FCC commissioners, so the November election will likely decide whether those rules are permanently adopted).

More to the point, though, is that even with all this vertical integration, Verizon would still have a relatively small share of both the ad tech and content market. The tie-up may trouble privacy advocates and consumers, but as far as regulators are concerned, it’s unlikely to be knotty.

If and when it does go through, Verizon will be the proud proprietor of two services that at one time were nearly synonymous with the Internet itself. Their best days may be long in the past, but they’re an Internet provider’s best hope for the future.

This story has been updated to include comment from Michael Calabrese.